Inventory control weaknesses – a case study of lubricant manufacturing company

Norazira Abd Karim, Anuar Nawawi and Ahmad Saiful Azlin Puteh Salin

Journal of Financial Crime, 2018, vol. 25, issue 2, 436-449

Abstract: Purpose - For a manufacturing company, inventory control and management is crucial to ensure smooth production and sustainable sales performance, as well as preventing stockout that will result in customer switch to competitors. This paper aims to examine the effectiveness of cycle count activities, one of the inventory control tools to manage inventory. Beside, this study also wishes to identify any loopholes in practices and procedures in inventory control of companies. Design/methodology/approach - One of the lubricant manufacturing companies in Malaysia was selected as a case study and mixed method data collection of document analysis and observation were used. The analysis and examination was conducted by using Committee of Sponsoring Organization of the Treadway Commission Framework 2013 as guidance. Findings - This study found that problems in inventory control can be caused by inconsistency of practices due to incomplete or absent standard operating procedures. Furthermore, no segregation of duties and excessive reliance on one person to conduct many tasks will lead to human error and fraud. Research limitations/implications - This paper enhances the theoretical understanding on the inventory control and management system applied in the manufacturing organization particularly. However, frequent changes of the management in the organization of the case study make the study difficult to obtain consistent information. Not all standard operating procedures were revised or updated and available for examination. In addition, some of the reports needed for investigation are confidential and requests to observe and scrutinize information from those documents are denied by the company. Thus, more in-depth analysis and verification on the issues of interest were unable to be conducted. Practical implications - This study provides an indicator that cycle count activities need to be conducted frequently on a regular basis so that the physical inventory and recording system are accurate. Cycle count activities also must involves various related departments in the company in which regular training is essential to ensure employees are aware and understand their responsibility and accountability on the inventory. Originality/value - This study is original as it focuses on the inventory control management of one of the largest lubricant manufacturing in Malaysia, particularly on cycle count activities which is scare in literature. Furthermore, the company allows research access to the documents and operations conducted in the company, which is usually difficult to obtain from many companies.

Keywords: Case study; Malaysia; Fraud; Internal control; Inventory management; COSO framework (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-11-2016-0077

DOI: 10.1108/JFC-11-2016-0077

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